Video games entered the mainstream of the pandemic, but the industry is facing a rough transition

For decades, Wall Street has seen video games like most Americans: a fun little fun of everyday life, but not something that should be taken too seriously.

The dynamic has been changing for years and definitely changed during the COVID-19 pandemic, which saw the video game industry go far beyond surpassing Hollywood in revenue and importance to the market. The top three U.S. public video game publishers: Activision Blizzard Inc. ATVI,
+ 0.06%,
Electronic Arts Inc. EA,
+ 0.40%
and Take-Two Interactive Inc. THREE,
+ 2.02%
– were worth nearly $ 150 billion at their peak in 2021, while some of the big tech names – from Apple Inc. AAPL,
+ 0.15%
and Microsoft Corp. MSFT,
-0.55%,
and Nvidia Corp. NVDA,
-0.83%
a Advanced Micro Devices Inc. AMD,
+ 3.15%
– They depend on the players to get big income.

For more information: Players spent billions more on video games during the pandemic

With greater relevance, greater control occurs. Video game studios have sometimes functioned as the fun of small diversions in product development, forming small groups willing to fail dramatically in search of great success, while paying little and supervising employees even less. These issues resurfaced when the state of California recently sued Activision Blizzard, which represented a toxic culture in the workplace, and employees revolted after the initial response from executives. Activision executives reversed course after the internal uprising, which sparked renewed calls for scrutiny from another video game maker that last year faced a similar calculation, French company Ubisoft Entertainment SA UBI,
-0.70%.

Employees are not alone in looking for a change in practices in the video game industry. MarketWatch readers may recall that Activision already faced a shareholder revolt this year as well, thanks to a years-long struggle for compensation from CEO Bobby Kotick, and that EA investors have expressed similar suspicions about executive remuneration practices. Activision investors sent their shares to the worst week in more than a year amid the most recent controversy, 8.6%, and shares are down nearly 10% year-on-year despite strong growth .

Expectations of upcoming earnings reports show that Wall Street, like employees, expects these companies to show greater maturity. While the video game boom during the pandemic has attracted and attracted new investors, companies are expected to have a hard time making a profit over last year as they end the onset of the COVID-19 pandemic.

Opinion: 7 smarter ways to play the boom in video games and sports than buying GameStop

Although Cowen analyst Doug Creutz does not expect a significant decline in the third quarter, he warned in a recent note that investors “could see some softening” after a second quarter of pace, but believes that the fundamentals are solid “with the growth of 2020 due to the shelter in place it does not seem to reverse despite rising vaccination levels”.

Analysts also see the same problem that many players express: the industry doesn’t seem to be heading to any new and exciting place, with sequels and retreads covering the launch schedule and potential next-generation technology, such as augmented reality and virtual and streaming Creutz did not seem strong enough to support a strong “secular thesis.”

VR, AR and other new technologies “are good companies, with growth prospects above GDP for the foreseeable future (assuming competent execution), but we believe there is no brilliant overall thesis to bring in new money,” Creutz said.

See also: Video games are about to become more expensive for the first time in 15 years

Creutz outperforms Take-Two, EA and Zygna ZNGA,
-1.08%,
but one market has a rating on Activision. All four of these companies will report on their profits this week: Take-Two on Monday, Activision on Tuesday, EA on Wednesday and Zynga on Thursday. Look for clues that the growth of video games may slow down in the coming months and that the companies themselves may change.

“Ultimately, we believe that commenting on the trends companies see in the third quarter will be the most important factor during the reporting season, with the potential to assure investors that the gains in commitment and monetization achieved during the pandemics are in fact quite sticky, “Creutz wrote.

The numbers to see
  • COVID-19 vaccine sales. Moderna Inc. MRNA,
    + 2.30%
    reports earnings on Thursday for the first time since joining the S&P 500 SPX,
    -0.54%,
    and all eyes will be on the sales of the COVID-19 vaccine company. Pfizer Inc. PFE,
    + 0.05%
    reported approximately $ 8 billion in vaccine sales, which set the pace for approaching $ 34 billion in annual sales. Pfizer confirmed its plans to seek U.S. approval for a booster shot, while confirming a higher shot price in a recent deal with the U.S., from $ 19.50 to $ 24, according to analysts of Mizuho Securities. Investors, who have boosted Moderna shares by more than 377% in the past year, will look for similar information from executives.

  • Test recovery. Uber Technologies Inc. UBER,
    -2.75%
    and Lyft Inc. LYFT,
    -2.50%
    will report this week’s results, and the two car-traveling companies are trading below the prices charged during their initial 2019 bidding. Companies have been struggling to get drivers back in their cars as they struggled to properly incorporate new wage practices in California. Investors will look for clues that indicate that some of the pandemic-related problems in vehicle recovery are shrinking, as they carefully analyze Uber’s costly attempts to boost its other businesses.

Full Profit Preview: Uber seems beyond acclaim as bounce and profit seeking continue

The call to put on the calendar
  • Alibaba Group Holding LTD.
    BABA,
    -1.19%
    Amid questions about the future of Chinese stocks listed on U.S. stock exchanges, the largest of this group will report profits on Tuesday morning. Alibaba shares fell 13.9% in July, their worst monthly performance in more than two years, although analysts such as Raymond James ’Aaron Kessler say:“ We believe most of these new regulations do not affect Alibaba “. Expect call executives to address those concerns on Tuesday, as they play into the company’s quarterly performance, which included the 6/18 trade event in China.

Full preview of earnings: Alibaba’s actions have been successful in China’s crackdown, but its benefits could be a different story

This week in earnings

According to FactSet, approximately 148 S&P 500 companies are expected to report this week, while only one DIA Jones Industrial Average DJIA,
-0.42%
component is on the calendar, Amgen Inc. AMGN,
-0.38%
on Tuesday. The calendar is stacked with companies that are not part of the major indexes, including Alibaba and Lyft on Tuesday, Uber on Wednesday, Beyond Meat Inc. BYND,
-1.49%
and Fresh Derivatives Vimeo Inc. VMEO,
-2.99%
Thursday at DraftKings Inc. DKNG,
-2.59%
Friday.

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